SMAUG AND MACROECONOMICS.

SMAUG AND MACROECONOMICS. Annalisa called my attention to the subject of Smaug and macroeconomics and pointed out that the most interesting thing about the subject is how much discussion on the internet the subject has generated. Much of the discussion turns on the assumptions that are made. This post by Frances Woolley at the wonderfully named Worthwhile Canadian Initiative blog points out first that the coming of Smaug caused a large loss of productive resources—burning woods and fields and killing skilled workmen. Woolley also argues that Smaug’s arrival “resulted in a severe monetary shock” because of the amount of gold currency that Smaug removed from circulation. (The Guerilla Economist argues here that Smaug’s arrival had no effect because the Dwarves were already hoarding money in a central reserve beneath the Lonely Mountain.) The comments to the Worthwile Canadian Initiative post generally agree that the death of Smaug and the release of gold that followed would have stimulated the Dwarf economy and possibly resulted in hyperinflation. The comments analyze a number of possible assumptions about the Dwarf economy and alternative currency regimes.